A Guide To Seller Concessions 

The real estate market in 2023 has been predicted to be flat as we go into 2024 according to the National Association of Realtors. Which means the current Buyers market that hit between May and April of 2022 will keep heading forward to 2024. One of the reasons it is a buyers market is because the interest rates were not as favorable to buyers compared to the year before and it slowed down demand. Going into 2023 interest rates are getting lower and predicted to be even lower so I’m advising my clients to take advantage of the market now in which seller concessions are now back on the negotiation table. Once interest rates go lower, the market will be filled with buyers which will then turn the market into a Sellers market. 

Understanding Concessions 

Concessions is money that can be applied to your closing costs. Third party contributions or concessions can come from the seller, builder, developer, realtor or broker. Usually when discussing concessions realtors will be discussing seller concessions. The seller may be able to cover part or all of these closing costs with concessions. Closing costs can be up to 3% of the purchase price of property. Some of the closing costs that can be covered are below. 

  • Property taxes: Pre-paid property taxes through the end of the year at closing.
  • Title insurance: Title insurance protects you and your lender if someone comes forth with a claim for the home’s title.
  • Loan origination fees: These origination fees cover your lender’s charges for processing your loan.
  • Inspection fees: Inspection fees cover the cost of inspections required for the loan. For example, in some states and on some loans, a pest inspector must evaluate your property before a sale can go through.
  • Recording fees: Recording fees cover the expense of documenting your home’s purchase with your local government.
  • Appraisal fee: This covers the cost of getting a licensed third-party appraisal of the home to determine the market value.
  • Attorney’s fees: In some states, you need an attorney to review closing documents. Attorney’s fees cover the cost of real estate attorney services.
  • Points: Mortgage points (also known as discount points) are upfront interest you pay to reduce your interest rate.

When is the best time to negotiate concessions? 

The best time to negotiate seller concessions is during a buyers market. Sellers are much more willing to provide concessions when demand is low and their home has been sitting on the market for a couple months. If you go to a market asking for closing costs during a seller market the probability is lower that you will find a seller willing to agree since they have stronger offers coming in. Inventory is a good indicator for understanding if it’s a buyers or sellers market, usually anything over 3 months is a buyers market and under 3 months of inventory is a sellers market. 

What are the max seller concessions? 

The amount of seller concessions a seller can provide varies by loan type.Max seller concessions for the most common mortgage types are as follows:

Loan TypeDown PaymentMax Seller Concessions
ConventionalUp to 10%3%
Conventional10% to 25%3%
ConventionalMore than 25%3%
FHA & USDAAny6%
VAAny4%
Investment PropertyAny2%

Other rules 

  • The seller concession may NOT exceed the buyer’s closing costs. There is no cash-back allowed with seller concessions
  • The adjusted sales price (including the concession) needs to be supported by the home appraisal. If the appraisal is too low, the seller concession may be rejected
  • For VA loans, the seller concession may be allowed to exceed the 4% limit, since certain closing costs are not covered by that rule
  • For USDA loans, the 6% seller concession limit is calculated using the buyer’s loan amount rather than the sale price or appraised value
  • Seller contributions are allowed on jumbo loans, too. But limitations vary by bank.

Summary 

In our Las Vegas market as of January we have more than 4 months of inventory which is a great indicator that we are in a buyers market. My colleagues and I are regularly getting concessions to cover closing costs for our clients. When interest rates are higher some of the best ways to apply those concessions is to buy-down points on your loan. This will allow the buyer to have a lower monthly payment and afford a beautiful home. So for example, if you’re getting a $150,000 loan, and you have $1,500 in leftover seller concession, you could buy 1 discount point and lower your rate by 0.25%.There are strategies for every market that will allow all parties to come out with a win. 

Contact Us today if you have questions!

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